Get to work erasing debt
An old proverb asks: How do you eat a whale? The answer: “One bite at a time.” So it goes with personal debt — a whale that an increasing number of millennials find sitting on their plate. This generation had total debt of more than $1 trillion at the end of 2018, much of it student loan debt, according to the New York Federal Reserve. It also found rising credit card delinquencies among young consumer classes.
There’s a fear that the slow, grinding approach to paying off debt will take over our lives, leaving us weighed down well into our golden years. It doesn’t have to. You may be able to pay down a significant chunk of debt by starting as early as possible and taking it one step at a time.
However much you owe, the basic strategies of debt management are the same: Pay off debt with the highest interest first, stick to a schedule and automate payments. In a pinch, you can even ask your lender for some leeway; most will work with you if you have a temporary setback.
Careful planning isn’t always enough to avoid hardship, however.
If you find yourself being pulled underwater by debt, consider credit counseling, a service that offers financial advice and debt-management plans. If you work with a nonprofit organization such as the National Foundation for Credit Counseling, lenders are more likely to accept new terms for your debt, which can lead to a more manageable payment schedule and lower interest rates. To find an NFCC office near you, go to www.nfcc.org/ locator.
Be wary of companies that offer debt settlement or relief. Debt settlement is a legal solution usually pushed by forprofit companies in which a creditor agrees to accept a lump sum payment that’s less than what you owe overall. These deals often fall through because creditors reject them or debtors fall behind while trying to save the lump sum, according to the Federal Trade Commission.
If you’ve stopped paying the loan directly while you save up a lump sum in hopes that your debt will be forgiven, you’ll be left with steep penalties and interest when the agreement fails. There also are fees when the debt is paid and it can ding your credit, NerdWallet points out.
Paying off debt will take time and, in all likelihood, it will be hard. But remember, you have options and, if you stick to a plan, it will get done.
Brendan Pedersen is a staff writer at Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.